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Grexit Can Wipe Out $1.4t in M&A

The fallout of a Greek exit from the euro could wipe out as much as $1.4 trillion in future mergers and acquisitions, according to a study by law firm Baker & McKenzie.

A disorderly ‘Grexit’–where the financial impact spreads unconstrained across global markets–could stymie about $250 billion of deal-making next year in Europe, excluding the UK, according to the study, which is based on financial modeling by Oxford Economics, Bloomberg reported.

The uncertainty created by a Greek exit would likely lower European equity prices, increase bond yields for countries such as Italy and Spain and damp business confidence and investment, the report says.

Transactions in the US and China may also be affected, resulting in lost deals worth about $700 billion in the two countries through 2020. A well-managed exit from Europe’s single currency would be less harmful in the same five-year period, sending deal activity in the region, excluding the UK, just two percent lower.

Restarting Negotiations

Euro-area finance chiefs will discuss Greece’s economic proposals on a conference call Wednesday morning, the first step toward restarting negotiations that Greece broke off late last month. Greece on Tuesday promised to put its plans in writing as German Chancellor Angela Merkel warned that “only a few days” are left to reach a deal.

Despite large losses in equities seen as vulnerable to Greek contagion, dealmakers remain optimistic. Global M&A activity this year is on track to pass $3 trillion for the first time since 2007, according to data compiled by Bloomberg.

Among the uncertainty, Greek companies are managing to do deals. UK private-equity firm BC Partners agreed on June 3 to buy a majority stake in Athens-based Pharmathen, a drugmaker with about 1,000 employees, while media company Antenna Group is in preliminary talks to buy Turkey’s Karnaval Media Group, a person with knowledge of the matter said last month.

Deadline

European leaders set a Sunday deadline for Greece to accept a rescue, saying otherwise they’ll take the unprecedented step of propelling the country out of the euro.

At a Brussels summit, Greece’s anti-austerity government was ordered to make new economic reform proposals that could earn it another aid package and head off financial ruin.

“We have only a few days left to find a solution,” German Chancellor Angela Merkel told reporters late Tuesday after euro-area leaders met in Brussels. She conceded that she is “not especially optimistic.”

Sunday now looms as the climax of a five-year battle to contain Greece’s debts, potentially splintering a currency that was meant to be unbreakable and throwing more than half a century of European economic and political integration into reverse.

“We have a Grexit scenario prepared in detail,” European Commission President Jean-Claude Juncker said, using the shorthand for expulsion from the now 19-nation currency area.

The European Central Bank will end its support for Greece if “there is no political accord in sight,” board member Christian Noyer said Wednesday in an interview on France’s Europe 1 radio. “Then our rules force us to stop completely. We’re starting to be very worried.”

The euro slid, and was 0.2% lower at $1.0990 at 10:25 a.m. in Athens, hovering near a six-week low. European stocks were little changed near correction levels with the Stoxx Europe 600 Index up less than 0.2% to 373.29.